Reference no: EM133115011

An economic analyst has proficiency in two areas: knowledge and skills. The knowledge the economist relies on includes the models of how and why economic agents make decisions and the institutional factors affecting the marketplace. Economic models and theories are a set of propositions that connect economic variables to each other. The institutions are the historical, legal, technological, and political factors at work in a particular industry. Critical thinking skills help the analyst take the institutional knowledge, use it to figure out which models are most applicable to the case at hand, and then use the models to come to conclusions about the industry.

This week is a review of the economic models used to analyze industries. There are two categories of models. One deals with market structure, that is, the environment in which businesses operate. The other is the theory of the firm, which looks at a company's costs and demand for its product. Both of these are tools for placing a context around the institutional aspects of the industries.

1. We are focusing on learning the basic tools used in economic research. Pick an agricultural product to analyze. Although not necessary, it would be helpful if this is the product you would like to study for the course project.

2. Based on the readings and research on the product,

a. What market structure (perfect competition, monopolistic competition, oligopoly, monopoly) best describes this market? What evidence do you have to support your conclusion?

b. Based on the market structure, what types of strategic decisions would managers and officers in companies in this industry make? For example, does the company consider price? Output? Likely response of competitors?

c. What external forces act upon firms in the industry? Some examples: legal and regulatory, international, technology, politics, consumer preferences, demographics.

d. What type of the demand curve (elastic, inelastic) is the typical firm likely to see? You can deduce elasticity by asking how buyers would respond if a given producer were to unilaterally increase or decrease price. What evidence do you have for your conclusion?

e. How much influence can an individual producer, or a group of producers working together, exert over demand? For example, are there ways the sellers can effectively increase demand (push the demand curve to the right)?

f. How would you characterize the typical firm's cost structure? In other words, based on the information you collect, are most costs likely to be variable or fixed? Is there evidence for economies of scale?